A column on personal finance prepared by the Virginia Society of Certified
Public Accountants

ESTIMATED TAXES AND THE NEW TAX ACT

(July 18, 2003) - Most taxpayers don’t have to do a thing to reap the
key benefits of the $350 billion Jobs and Growth Tax Relief Reconciliation Act
of 2003 signed into law on May 28, 2003. By mid-summer, when employers start
using new tax withholding tables that reflect the reduction in the tax rates,
employees can expect to see higher paychecks. And, beginning in late July, the
IRS will automatically send taxpayers who qualify a check representing an advance
payment of the increase in the child tax credit.

According to the Virginia Society of CPAs, self-employed individuals and taxpayers
with significant investment income don’t have it quite as easy. In order
to take immediate advantage of the lower tax rates on regular income, capital
gains, and dividends this year, they will have to adjust their estimated tax
payments. Those estimated payments are due September 15, 2003, and January 15,
2004.

Use IRS Form 1040ES to calculate estimated tax payments

Form 1040ES, Estimated Tax for Individuals, comes with a worksheet you can
use to estimate how much tax you will owe for 2003. Be sure to consider the
following changes in the 2003 Act when making those estimations:

Reduced tax rates – The new tax rates are 25, 28, 33, and 35 percent,
down from 27, 30, 35, and 38.6 percent, respectively. These changes are retroactive
to the beginning of 2003.

Expansion of tax brackets – Retroactive to January 1, 2003, the 10
percent bracket is increased from $6,000 to $7,000 for single filers and from
$12,000 to $14,000 for joint filers. This expansion of the 10 percent bracket
helps all taxpayers, because the first part of everyone’s income falls
in the bottom bracket. For heads of household, the 10 percent bracket covers
the first $10,000, same as before.

Marriage penalty relief – The 15 percent bracket for joint filers
is now twice as wide as the 15 percent bracket for single filers. Under the
new law, income that would otherwise be pushed into the next tax bracket and
taxed at 25 percent is taxed at 15 percent. The top end of the 15 percent
bracket for married taxpayers rises from $47,450 under prior law to $56,800
for 2003.

Higher standard deductions – The standard deduction for joint filers
is now $9,500, double the amount for single filers ($4,750).

Capital gains tax reduction – Net Long-term capital gains under the
new tax law from property held for more than a year is 15 percent (5 percent
for taxpayers in the 10 percent and 15 percent tax brackets). The lower rates
apply only to long-term capital gains from sales on or after May 6, 2003.
Note that the 28 percent maximum rate still applies to sales of collectibles
and certain small business stock.

Lower dividend tax rate – Effective for all of 2003 and through year-end
2008, the maximum tax rate for qualified dividends from domestic corporations
and qualified foreign corporations is now 15 percent (5 percent for taxpayers
in the 10 percent and 15 percent tax brackets). Previously, dividends were
taxed as ordinary income, at your regular tax rate, which could have been
as high as 38.6 percent.

Higher alternative minimum tax exemption amount – The new law raises
the AMT exemption amounts. The exemption for single taxpayers rises to $40,250
(up from $35,750) and the exemption for married couples rises to $58,000 (up
from $49,000). The higher exemption amounts apply only to tax years 2003 and
2004.

Business provisions enhanced – For small business owners who place
in service qualifying property in 2003, changes in the Section 179 expensing
deduction and first-year depreciation allowance should also be considered
in computing estimated taxes.

A CPA Can Help

Computing your taxes based on the new rates for income, capital gains, and
dividends will help you avoid paying more than necessary in estimated taxes
and making, in effect, an interest-free loan to the government. A CPA can help
you compute your estimated taxes.

The Virginia Society of CPAs is the leading professional association
dedicated to enhancing the success of all CPAs and their profession by communicating
information and vision, promoting professionalism, and advocating members’
interests. Founded in 1909, the Society has nearly 8,000 members who work
in public accounting, industry, government and education. This Money Management
column and other financial news articles can be found in the Press Room on
the VSCPA Web site at www.vscpa.com.